Wednesday, September 14th, 2011

The BEA yesterday released advanced 2010 numbers for metro area GDP. This of course measures what was happening last year, not today as with the more current national GDP numbers. But it is still worth reading.

The headline is that after a 2.5% drop in GDP in 2009, there was a 2.5% rise in overall metro GDP in 2010. That’s good news from an economic output perspective. Here’s the BEA’s quintile chart of 2009-2010 changes:

From a national perspective, among large metros San Jose was a runaway winner, growing by 13.4%, nearly doubling up on second place Austin at 7.0% This clearly shows the recent tech boom in action. Here are the top ten cities (among metros of more than a million people, on a real GDP percent change basis).

Rank

Metro Area

2009

2010

Pct Change

1

San Jose-Sunnyvale-Santa Clara, CA

147,860

167,661

13.39%

2

Austin-Round Rock-San Marcos, TX

76,698

82,043

6.97%

3

Raleigh-Cary, NC

49,078

51,629

5.20%

4

Boston-Cambridge-Quincy, MA-NH

271,584

284,564

4.78%

5

Portland-Vancouver-Hillsboro, OR-WA

116,182

121,680

4.73%

6

New York-Northern New Jersey-Long Island, NY-NJ-PA

1,096,869

1,147,917

4.65%

7

Nashville-Davidson–Murfreesboro–Franklin, TN

70,026

73,255

4.61%

8

Pittsburgh, PA

99,039

103,145

4.15%

9

Hartford-West Hartford-East Hartford, CT

75,969

78,880

3.83%

10

Indianapolis-Carmel, IN

89,562

92,804

3.62%

Per capita values are not available at this time as the BEA is still benchmarking to the new Census values.

Of course, economic output growth is one thing, job growth – arguably what we need most – is another. San Jose, which blew up the charts in output growth, didn’t grow jobs much at all. Ryan Avent discusses this case study specifically over at his blog in a post called “The Gated Valley.” He attributes the discrepancy to the inability to expand the housing stock. I’m sympathetic to this, but there are other barriers to employment growth in California, and the tech industry has seen a significant change in its employment patterns as even the most successful companies often don’t have that many employees. Whatever the case, don’t assume that all the top cities in this survey necessarily have healthy job markets.

It’s useful to look not just at 2010 growth but also at 2008-9 contraction. San Jose had a huge contraction in 2009 – 4% total, i.e. not per capita. Over 2008 and 2009, its inflation-adjusted per capita income contracted 10%. (Its population actually grew a fair amount, because of declining housing prices.) The 13% growth is just bounceback.

We’re back to this: many of the metros in the top quintile have significant US military installations in them.

Quite a few others have significant automotive component or assembly operations.

I agree with Alon. It would be interesting to see a 10-year series of these numbers, to determine how many of the top performers are really top performers over a long period, and how many are just bouncing back from extremely depressed conditions in 2008 (South Bend, Fort Wayne, Evansville/Princeton and Kokomo, IN; Lexington/Georgetown, KY; Lansing, MI). One good year could be part of a long-term trend, or it could be a dead-cat bounce.

One of the significant things happening in Pittsburgh that has nothing to do with the metro is vastly increased oil and gas activity around the Marcellus Shale. One would expect the capital and largest city of Northern Appalachia to be the business center for that activity, which is dispersed through eastern Ohio, West Virginia and central/western PA.

Here are total and per capita income numbers for 2000-9. If you switch to the AMSA table you can get a total income figure for 2010, but the BEA has no reliable population numbers yet, and the AMSA table doesn’t let you see an easy table of different metro areas’ incomes over different years. Between 2000 and 2009 the CPI inflated 24.59%, and between 2000 and 2010 it inflated 26.63%.

Per capita numbers for the biggest MSAs, not adjusted for inflation (i.e. anything less than 24.59% is a real contraction):

Using that BEA table, Pittsburgh’s per capita personal income increased 36.8% between 2000 and 2009, and that was before there was much in the way of natural gas drilling in the region. Therefore, it’s reasonable to believe that the economic momentum in Pittsburgh isn’t just about energy jobs. The energy jobs simply made a pretty good situation even better, which is how Pittsburgh fared well during this past recession, and is still faring well even during this “recovery.”

I’m eager to see how the 2010’s turn out for Pittsburgh since they were one of the few major U.S. cities not to lose their shirts in the late 2000’s, and also seem to be accelerating pretty well in spite of not having lost much in the first place. It’s a stark contrast with the early 1980’s, when Pittsburgh was basically stripped naked, and had its car stolen and its house set on fire. In the late 2000’s, Pittsburgh only lost its watch.

The GDP numbers tell the story about the overall health of the metro economy. (Is the local tide rising or falling?)

The per capita personal income numbers try to tell the story through the lens of the “average” wage-earner in a metro. (Are the boats being lifted?)

The two will not necessarily coincide or correlate. Rising per capita personal income does not necessarily mean that a metro economy is expanding.

Rising PCPI probably should correlate relatively well to a rising per capita GDP, which is a gross productivity measure. But per capita GDP can rise even if GDP itself is shrinking, stagnant, or growing slower than the national average because it also depends on the (independent) population variable.

Think of it on a company scale: sales per employee can rise even if sales go down. The feat is accomplished when enough people leave the company to offset the sales decline. For a while, a shrinking company can show increasing sales per employee.

Same thing on a regional scale: if people are leaving the metro (as happened in Pittsburgh 2000-2010) the denominator in the fraction goes down. Per capita GDP measures may increase even if growth is minimal. So, too, might per capita income.

My point: to really tell a good “economic growth” story about any metro, one must look at the overall GDP growth over a sustained period.

The problem with GDP in a subnational entity is that the denominator is all residents and the numerator is all economic activity, including that generated by nonresidents. If you try to apply it to regions with a substantial number of inbound commuters, for example central cities, you’re going to get outrageously high numbers; compare this map of GDP per capita in the EU with the reality that Yvelines is not really poorer than Paris and Hauts-de-Seine. Even MSAs often still have a lot of inbound commuters – for example, Los Angeles’s misses the Inland Empire.

Another problem is that corporate profits can skew the picture: for example, Groningen has the highest GDP per capita in the Netherlands and one of the highest in Europe, not because its residents are particularly rich but because all the offshore gas extraction is deemed to be part of the Groningen region and therefore the corporate profits, which go to shareholders who live elsewhere, count as part of the regional GDP.

Alon, I am not sure how the problems you cite make comparisons among most US metros invalid. I agree on the megalopolis issue with the California regions, so it’s probably necessary to agglomerate the Bay Area (SF, Oakland, San Jose) and Southland (Santa Barbara, LA/Long Beach/Orange County, Inland Empire).

Apart from that tecnical issue, I think change in regional GDP is as good a measure as there is for the overall economic well-being of a US metro and a reasonable basis for comparison over a long period.

Also available on the BEA website is a 2007-2010 series. The US economy shrank 0.37% over that stretch.

Madison is the 68th largest regional GDP, so I compared the top 68 nationally and weeded for geography. The final list includes Chicago, Detroit, MSP, St. Louis, Cleveland, KC, Indy, Cincinnati, Columbus, Milwaukee, Omaha, Des Moines, and Madison in the Midwest plus Pittsburgh and Louisville on the edges.

Of that group of 15, Madison, Pittsburgh, MSP, Omaha, Indianapolis, and KC grew metro GDP faster than the national GDP in constant (2005) dollar terms. All those metros actually grew 2007-10; the rest shrank more than the national economy. In the region, only Detroit and Cleveland shrank faster than Chicago over those years.

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